China asks SOEs to discard their “social functions” by 2020

China has ordered state firms to dismantle a decades-old system of providing cradle-to-grave welfare support, known as the country’s “iron rice bowl”. This order is a part of a plan to reduce financial pressure on bloated and heavily indebted state- owned enterprises (SOEs). In direct line of fire of this order is a state coal conglomerate that dominates the economy, society and air of the heavily polluted city in Henan province in central China, called Pingmei Shenma Group based in Pingdingshan city. The firm has chemicals and construction businesses as well. But it also has a startling number of other responsibilities. It operates 41 hospitals and 18 schools, and provides pensions, subsidised housing for workers, water, heating and power. It even runs a plush retirement home, complete with golf course, for its senior managers. The fate of these facilities and the landmark for the city’s residents is now unclear. If they are not closed down, much of the infrastructure will need to be renovated, which State Council researchers estimate will cost more than 1 trillion yuan ($208 billion) nationwide. Some of Pingdingshan hospitals already have fewer miners to treat after capacity cuts in coal production.

Beijing has given SOEs until 2020 to discard their “social functions”. But for Pingdingshan, the deadline is more imminent because Henan wants to complete the process by the end of next year under a pilot project. That puts it under the spotlight with Beijing as well as other provinces facing similar challenges. State firms in wealthier regions of the country already moved away from paying for social welfare services some years ago but poorer provinces, especially one-company towns like Pingdingshan struggled to make the switch given the central role played by their SOEs. China’s SOEs had accumulated total debts of 85.3 trillion yuan by the end of September, thanks to a credit splurge encouraged by Beijing following the global financial crisis. Executives have repeatedly called on Beijing to help reduce their costs and encourage it to stand on its own feet as in the case of commercial business.